Y ?lmaz Akyüz
More than five years since the outbreak of the global financial crisis, the world economy has shown few signs of stabilising and moving towards strong and sustained growth. While deleveraging continues to stifle private demand, economic activity is further restrained by a fiscal drag in the U.S. and Europe, as governments have turned to fiscal orthodoxy after an initial reflation. There has been excessive reliance on monetary policy, especially in the U.S., through provision of large amounts of liquidity to financial markets and institutions at close-to-zero interest rates, using unconventional means. This has been largely ineffective in re-igniting bank lending and private spending, but has given rise to a search for yield in high-risk investments, increased leverage and boom in equity markets. It has also generated financial fragility and exchange rate instability in major developing countries. The implications of an extended period of ultra-easy monetary policy in several reserve-currency issuers for future international financial stability remain highly uncertain since these are largely uncharted waters.